By Glen Creno

The Arizona Republic

Valley home sellers frustrated by a lack of action on their listings will soon have another selling tool: the auction block. 

More than100 homes are expected to go up for bid in a mass housing sale set for next month in downtown Phoenix. 

Housing auctions, popular during the economic downturn in the early 1990s, are reemerging as sellers look for different ways to make their home stand out from competing listings.  In the Valley, more than 40,000 resale homes are on the market, 10,000 to 15,000 more than historic inventory. 

National Real Estate Auction Corp. is planning the auction, scheduled for    March 24 at Phoenix Convention Center. The Scottsdale-based company is trying to collect 125 to 200 houses with prices ranging from the $100,000s to multimillions in the first of what it hopes will be a regular series.

“People think there’s a deal, and there’s a curiosity factor,” said John McCann, president of the auction company.  “It creates buzz about the property.  It’s pretty much a new form of marketing and advertising.” 

The Valley’s housing market is struggling to pull out of the doldrums after the frenzy of 2004 and ’05 when speculators and easy mortgage money created record sales and prices.  In addition to the 40,000 resale homes on the market, it is estimated that there are as many as 25,000 “spec”, or speculative, houses that home builders have completed or are working on but have not sold.  Some experts say that any mechanism, including an auction that reduces some of that inventory should be welcome; though they acknowledge it will take more than 200 homes to make a dent in the local inventory. 

“It’s an incredibly legitimate way to sell property,” said John Foltz, president of Realty Executives.  “It is a different technique.  Sometimes, an auction can bring better results.” 

Dave Bean has tried the usual moves in the real estate playbook, without success, to sell his $3.2 million house in Fountain Hills.  He took out color ads in housing magazines.  There were open houses and real estate agent tours.  All it got him were some “bottom fishing” offers from lowball buyers as the house languished for about 250 days on the Valley’s sagging resale market. 

Bean was out of ideas, but the marketing executive doesn’t mind listening to a pitch.  He got one when he took the house off the market and leased it to McCann, who talked up the auction.  Now, Bean has the Fountain Hills house in the auction along with a $725,000 home he owns in Scottsdale Mountain.  Combined, he hopes they bring a little over $3.9 million. 

“I like the concept of an auction,” he said.  “It creates a sense of urgency to sell something.  For some reason, the word ‘auction’ has a touch of magic to the consumer because they think they will get a good deal.” 

But auctions, especially for houses, can project the image of a cheap sale from a desperate seller.  Sellers not willing to make big cuts may be frustrated to learn the buyers are bargain hunters or vulture investors. 

“I think they’re just kind of scammy-type predators in a market where they can hopefully get a bunch of buyers and get enthusiastic response,” said Doreen Drew of Daisy Mountain Real Estate in Anthem, referring to auction companies.  “A lot of times, they don’t reach the reserve or the minimum amount.  These guys are trying to create a little buzz: ‘I got my house at auction, and I got it cheap.’  And I don’t think the sellers have capitulated yet.  I don’t think they have said: ‘I just don’t care.  Just drop the price to the mortgage and I’ll walk away from it.’  ”

How the auction works

■ Only registered bidders can bid, though visitors and spectators can attend.  Registered bidders post a $2,500 deposit that is returned if they don’t buy a house.  Separate deposits are required for each house in the bidding.

■ Sellers pay a non-refundable fee ranging from about $2,000 to $10,000 to get into the auction.  This covers various levels of marketing done before the event.

■ Telephone, fax and Internet bidding allowed.

■ Buyers can tour houses in advance and have them examined by a home inspector.

■ Auctioneer can accept or reject any bids.

■ The winning bidder signs a sales contract at end of bidding, and the $2,500 deposit is posted and credited toward a 3 percent deposit.

■ Winning bidders must post the rest of the 3 percent deposit by 5 p.m. on auction day.

■ Seller can set a reserve, or minimum, price for the house or set no restriction at all.

■ Buyer accepts the property “as is” with no warranties or guarantees.

■ Winning bidders pay a 10 percent buyers premium at closing.

■ Real estate agents for the buyer and the seller receive 3.5 percent each if the house is sold on the day of the auction.  The auction company pays them, not the seller.  If the house is sold before or after the auction, the auction company receives 1 percent.

■ Information: (480) 348-2243 and www.azpropertybid.com.

When you say “auction”, most real estate observers in the Phoenix area immediately think of the property fire sale conducted by the federal government in the wake of the savings- and-loan collapse of the1980s.  But that was mainly land and commercial property.

“Historically, when auctions begin to appear, it’s not a good sign”, said Jay Butler, head of realty studies at Arizona State University.  “Rightly or wrongly, auctions are seen as a negative.  In real estate, the auction is perceived to be a last-resort process.” 

Brett Barry of Realty Executives said the two things stopping homes from selling now are price and the condition of the house.

“If sellers are going participate, they need to say, ‘We’ve been overpriced.’  The typical seller, they are greedy, they will think this is the magic pill,” Barry said.  “What is the magic dust that makes the house sell?  To me, it sounds more like a gimmick unless they can get the prices down.” 

Residential real estate typically has been a fraction of the overall auction market, but that has changed in the wake of the real estate boom, which lured more investors who viewed homes as fast-flip investment vehicles. It now is the fastest growing area of auctions.  The sector grew 12.6 percent in 2006 and generated $16 billion, according to the National Auctioneers Association. 

McCann said his auction business got started on a single house in Boca Raton, Fla.  He said so many people were interested that he collected 37 homes ranging from $150,000 to $1.8 million and sold them. 

Next stop: Phoenix, known for leading the country in home-price appreciation during the boom years when the combined new- and resale home median price rose to $279,000 in 2006 from $160,000 in 2003.  The area is now nearing a two-year high in foreclosures or in instances of people falling behind on their mortgages. 

This won’t be the only auction the area has seen.  One that collected a handful of condos at the Optima Biltmore Towers last year drew only lowball bidders, and none of the properties sold. 

As of midweek, McCann had seven or eight homes consisting of resales and builder specs signed for his Phoenix auction.  He expects more when a $300,000 marketing campaign kicks in next week. 

John Burns, a real estate consultant based in California, said holding an auction is a good way for someone like a developer with an oversupply of housing to set the market value.  He also thinks auctions will increase as people fall behind on risky mortgage loans. 

“I think the banks in this cycle will wind up with a lot of homes and would rather do this than go through a foreclosure auction,” he said. 

McCann has high hopes that housing auctions will continue to gain steam.

Burns sees them as a symptom of the real estate cycle that will disappear when the market stabilizes, but he thinks people will go to them. 

“It will be a function of price,” he said.  “I think tons of people are ready to gobble them up if they are a real deal.”

Download The Arizona Republic - February 2, 2007